Defaqto Risk Ratings

Defaqto has developed its own Risk Ratings, based on volatility ranges, with corresponding risk profiles to enable you to match clients to suitable investment options.

We have a set of 10 Risk Ratings, where Risk Rating 1 represents the lowest risk, and 10 indicates the highest risk. The ratings are based on volatility ranges (%), and there are overlapping boundaries between each of the ratings. This allows some discretion as to where a fund best sits, and minimises funds moving up or down the ratings over time.


Risk Rating process

Defaqto has an extremely robust process to risk rate funds. We look at the fund’s past volatility and use Moody’s stochastic engine to model the fund’s future volatility using its asset allocation (both long term and current), together with assumptions for the future returns, volatilities and co-movements of the asset classes it holds. Then we will hold a discussion with the fund manager which ensures a common understanding of our process, but also gives us the chance to consider other factors, such as a manager or mandate change during the life of the fund, which the numbers alone might not capture. The fund is then given a Risk Rating.

Over 500 risk rated funds

We risk rate over 500 multi-asset funds and DFM managed portfolios (both direct and platform) and this number is growing all the time. This gives you a large number of funds to make recommendations from, whilst providing you flexibility in your investment strategy.

 

 

 

 

 

 



Quarterly reviews

Once a fund has received a Risk Rating, we review this rating every quarter in our Investment Committee to ensure it still sits within the agreed parameters for that rating level. If a fund’s Risk Rating changes, Engage will notify you so you can review your clients’ portfolios.

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